Even with Infosys' disappointing results, with the company's Q4 net profit up just 3 percent year-on-year to Rs 2,394 crore, SP Tulsian of sptulsian.com feels you cannot just write-off the company or sector.
Talking to CNBC-TV18, he feels the broad strategy should be to enter this stock at Rs 2,200-2,220, look for a price of Rs 2,350 till the company comes out with the Q1 numbers and then sell the stock. About RIL, whose results will be out on Tuesday, he says he will not hesitate in recommending a buy call below Rs 760 on the stock.
Here is the edited transcript of the interview with CNBC-TV18
Q: Through the course of the day we have heard a lot of opinion on the Infosys stock with respect to EPS, guidance etc. But for a long-term investor who has been holding Infosys, what should the call be now? If I was holding Infosys, I would think why should I be with a company that will not grow not only at par with the National Association of Software and Services Companies (NASSCOM) guidance, but will not give as high as risk-free rate of return as well?
A: You are absolutely right. If I need to take the multifaceted view on this, an industry leader cannot say that they will be growing at 6-10 percent on the topline when the NASSCOM guidance is 12-14 percent, number one. Number two, you cannot give such a wide range of 6-10 percent, so in that case considering the failure of their achieving the guidance even in FY13, people will obviously be taking the 6 percent guidance.
Number three, they have not given any guidance on the earnings front, so that shows that they are mentally very weak. They are very concerned. They themselves are very apprehensive and the body-language, when you have seen the management talking I do not think that that gives any kind of confidence.
So there is no reason. You are right. Fourthly, if you really see probably the quarter-on-quarter call has to be taken which gives a lot of volatility. The company has given good numbers for Q3. You saw the stock moving up by 11-12 percent. I do not think a defensive investor or an investor with a longer-term horizon who is looking for a moderate return can afford to remain invested in such a high volatile stock.
Yesterday in the same show, we talked that for the last couple of days the way the stock has moved up probably indicated that some inside information is coming that the FY14 guidance is likely to be very good. That shows that even the inside information or maybe the strong hands are playing into this market. So, this kind of volatility is really very bad considering the amount having lost by the investors.
They will say that what is my fault? I have gone for the best stock. I have gone for the best sector. I have gone for the best leader and in spite of that if I lose 20 percent in just maybe a week or so what is the point in remaining invested. So the scars are going to remain for a very longer time.
I do not think that investors will really be taking a look to this company, because as such the industry has not gone into the tailspin. People still feel that probably the TCS will be able to post the results as per the guidance or as per the expectations given by them.
So if you put a pecking order probably TCS will be the most preferred one, HCL Tech second, Wipro third and maybe the Infosys fourth. So yes, you are right that in the current situation honestly I do not see any reason. But you cannot just write-off this company and write-off this sector. So maybe a level of Rs 2,200 because the kind of liquidations which we have seen in the stock today.
Probably the stock has gone under-owned and now the shorts have all got created. The weakness which we have seen in this last half an hour in my view is more to do with the day positions which are now getting liquidated. In the morning people bought at Rs 2,400 thinking that this is an overreaction or maybe the knee-jerk reaction. Even those hands are now moving out. So, maybe Rs 2,200 level can be looked into for an interim period. You cannot take a linear or a secular call on the stock that I will remain invested for 12 months.
Enter into the stock at Rs 2,200-2,220, look for a price of Rs 2,350 till the company comes out with the Q1 numbers and just get out of the stock. So that should be the broad strategy for playing into this stock.
Q. Your call on the sugar space. The stocks are reacting quite sharply. Renuka is up 5 percent, Bajaj Hindustan is up 3 percent. Is it a bigger positive or do you think this will also at some point see a bit of sell off at higher levels?
A The sugar sector was expecting two pieces of news to come in. One was scrapping of levy and second is this ethanol tender contract getting finalised with the oil marketing companies (OMCs).
The first one you have already seen, and on that day or maybe prior to that we have seen the stocks move up by about 8-10 percent on scrapping of the levy sugar. But if you really ask me, I will be more optimistic on the sector once the ethanol contracts by the oil marketing companies (OMCs) get finalised.
And as you have rightly said, the contracts having been finalised now with Rs 34 per litre in Uttar Pradesh (UP), Rs 36 per litre in Karnataka, Rs 35 per litre in Tamil Nadu will really be giving them an assured offtake, because OMCs are the biggest buyers.
Of the total ethanol productions in our country, 50 percent go for portable or for drinking purposes while about 30 percent go for blending with petrol. So that will be definitely giving them very good assurances. They don’t have to see the fluctuations of the product on a day-to-day basis.
Apart from that, their cash flow will really be very much better. Overall if you see the present contract was at Rs 27 per litre, and now if you take an average of Rs 35 also, that’s a better realisation.
Though the companies have been realising closer to Rs 32-33 or maybe Rs 38 presently in the open market, but continuation on a long-term basis and that too with OMCs will definitely be seen positive. So yes, better byproduct realisations will be positive for the stock on a longer time horizon.
Q: Would you do some last hour shopping before we head into the weekend?
A: In spite of seeing such a weak market, you may call it depression, I have chosen two buy calls. First is Karnataka Bank. I am seeing the renewed buying here.
For last two-three days I had been keeping my positive stance on the stock, and though it is last one hour call, but maybe for next three to four days this can really work as a very good call for buying. So for the day, I have given the buy call on Karnataka Bank a with a stop loss of Rs 135 and target of Rs 138.50.
The second stock which I have chosen is Renuka Sugar which we have just now discussed. The ethanol story as I see it is quite positive and the last hour we have seen positive bias coming in all the stocks. The buy call again on Renuka Sugar with a stop loss of Rs 25 and target of Rs 26, because maybe at the fag end we may see the position getting built again on the stock. So this is my second call.
Q: Any call on JP Associates at Rs 69. Has some semblance of buying has returned to the stock?
A: That buying we have been seeing for the last two, three days. In fact, on Thursday also if you see the buy call was given on the stock by me and I think that the market is expecting something, maybe either in respect to the sale of their cement unit in Gujarat or in Andhra Pradesh. Apart from that, maybe some indications are coming in for better working.
It is very difficult to substantiate whether this up move is purely due to short covering, but I feel that may be some value buying is also returning back into the stock at the lower level. So, this upward move can continue which can make the stock to move to about Rs 73-74 where we may see again some respite or some stability coming into the stock.
Q: Tuesday is when we have the numbers from Reliance Industries. What is your own expectation and what is the call on the stock?
A: I have not yet done the number crunching for Q4. But if you just divide these three segments, first come on the upstream, that is oil and gas. We have all been hearing that the production is gradually falling and now is set at 16 mmscmd.
So I do not think that the market will really be too much perturbed because that seems to have factored in into the price, number one. Number two, the refining margins are likely to be more or less on the lines of the Q3. I will not be surprised to see the gross refining margin (GRM) will be maintained on the same lines what they have earned in Q3, because the lower trajectory or maybe the softness in the GRM has started happening from the middle of March.
Coming to what has been minutely understood and needed to take a call on. So, Rs 5,500 crore PAT, which the company has posted for Q3, I do not think that it will really be Rs 50 crore plus or minus that, and whatever disappointment which we have seen has already been factored into the price.
The biggest advantage with Reliance is that now it is not ruling at a level of Rs 840-850, from where the stock can correct by Rs 40-50. From hereon if it corrects for some reason even by Rs 20-25, the buying will definitely start emerging. You have the other positives like Comptroller and Auditor General (CAG) has started the financial audit.
They have found the new discovery in D6 and all that, so maybe the focus will get shifted from Q4 numbers to these other points. So, am not keeping a very negative stance on the stock and I will not hesitate in recommending a buy call below Rs 760 or so on the stock.